Risk Analysis of German Banks

Risk Analysis of German BanksDuring this assignment, the German hopes info were comp bed to that of France and Italy lodges. A naive regression summary was performed. The entropy suggests that in that location atomic number 18 great variations in the basic principles when be applied in finding step to the fore the assume assays. In general, it is famous that that the France and Italy banks atomic number 18 more take a chanceier than the German banks.In the pecuniary institutions, the risks be assessed in a very particular manner. The purpose of discussing risks is to instigate the investors in the banking sectors. on that pointfore the focal points and high level authorities in the banking remains apply the various tools in addressing the risks. It is very eminent that the with out the check of the banking systems by and large the businesses open fire non grow, as these should be. Therefore on that point must(prenominal) be some ways of addressing the risks in the very source place. Including to satisfy the share holders and stakeholders, and other stakeholders, (Watson and Head, 2005).There are eminent differences in amidst the emerging foodstuff monetary systems and the banking systems of developed countries. However the reasons for this signifi skunktly. It is noted that the various researchers, scholars, and academicians energise shown divided ideas. As we can that some of them had a firm view about the unstable macroeconomic environment, and rest of the scholars befuddle come forward with the point about weaker risk management practices, (Beck et al. 2003). holding the immensity of risks legal opinion and its management, the followings are highlighted, so that this issue can unsounded in an acceptable way.Literature of ReviewThe banks invest their money in the different projects, such(prenominal) as buying of shares, construction projects, and other financial intuitions. There is likewise a fact that the management s i n the banks monitor, evaluate and judge the performance of their projects during and after the completion of projects. Similarly, Ma, and Eli (2005) indicated that the implementers in the banking sectors must get the lessons for the previous years, failing to this would be failure of the whole project. basic altogethery they (Ma and Eli) did support the theory of application, which suggests that investing directly to the system do not justify the swear out. There must be a some form of rational in addressing the risks in the financial and extremely competitive environment.In addition, to higher up, according to Bank for International Settlements, (2002) and Topping (2005) while highlighting the importance of risks evaluation and its management indicated that the some of the factors which contribute the risks are such as, the changing nature of macroeconomic risks, new forms of risks to the banks, and whether or the abilities, skills and other measures waste real improved in addressing the issues of risks. In very simple words, it is found that the risks amplification when the banks do not imply certain methods. These methods are related to tick off and judge the results of previous years when on that point were projects in the pipe lines. almost of the high rated researchers, scholars and professionals such as Chris (2008) and Topping (2005) basically indicated the following levels are addressed and if done, because thither are less chances of increasing risks, such asRisk identificationThis is very basic stage where the banks can identify the risks. In simple meaning in the inputs are discussed broadly, and its implications are noted before, during and after the completion. In broader sense, this is done at the sites, where projects testament be launched. Particularly, the following points can help in identifying the risks, such as Who will take responsibility for risk identification? Process for risk identification, including brisk and new prod ucts, and Regularity in reviews.Risk measurementThe followings nine factors can be measured during risk measurement such asCapital,Assets, market risks,Earnings,Liabilities,Business,Internal Controls,Organisation,Management.Whereas while talking about frequency of risk measurement, the followings should be noted very carefully, such asSources of entropy, it includes market prices and position entropyRisk measurement tools, given the complexity and level ofrisk assumed, skill to measure risk at both transactional and portfolio levels.Methodology to ensure all identified risks are monitored,Accuracy, and clarity of monitoring reports,Involvement of management and provide in having the reports,Comparability of output against predetermined limits.http//www.fsa.gov.uk/pubs/policy/p10.pdfThe benefits of risk assessmentThere are multi-layered assessment benefits to the banks and financial institutions. It include such as to make profits and distribute among the shareholders. It helps t he clients for the banks others (employees) satisfied. This brings more jobs to the public and indirectly helps in boosting GDP.The risk assessment keeps busy the staff in doing their professional work. It can be seen that the supervisors need to spend time on-site discussing the issues with senior bank management. The time taken to perform this work will vary from bank to bank depending on the size and complexity of the institution. However, following a risk assessment, the supervisor will be better placed to decide on the intensity of the future supervision having obtained a better understanding of a banks risk pen. The intensity of supervision and the amount and focus of supervisory action will increase in line with the perceived risk profile of a bank. One advantage this has for banks is that the cost of supervision, in terms of management time or through direct costs. WE have to agree that the banks deliver high costs for initial assessments, and in turn if their projects are completed, the banks then take benefit of having high wages and other facilities. The bank positive especially in the third world are highly paid. table 1 shows the three pillars in the banking sectorPillar 1lower limit Capital RequirementsPillar 2Supervisory ReviewPillar 3Market DisciplineMarket risk_ No changes from Basel I impute risk_ Significant change from Basel I_ Three different approaches tothe computing of minimum nifty ingestments_ Capital incentives for banksto move to more sophisticated reliance risk managementapproaches based on internalratings_ Sophisticated approaches havesystems/controls and datacollection requirements as wellas qualitative requirements forrisk managementOperational risk_ Not explicitly covered in Basel I_ Three different approaches tothe calculation of minimumcapital requirements_ acceptance of each approachsubject to compliance withdefined qualifying criteriaBanks should have a processfor assessing their overallcapital adequacy and strategyfo r maintaining capital levels_ Supervisors should review andevaluate banks internal capitaladequacy assessment andstrategies_ Supervisors should facebanks to hold in above theminimum capital ratios andshould have the ability torequire banks to hold capitalin excess of the minimum(i.e., trigger/ sharpen ratios inthe United Kingdom promptcorrective action in theUnited States)_ Supervisors should seek tointervene at an early stage to go on capital from fallingbelow minimum levelsMarket discipline reinforcesefforts to hike safety andsoundness in banks_ Core disclosures (basic cultivation) and supplementarydisclosures to make marketdiscipline more effectiveSource KPMG, 2003.The Table 1 above shows the details of three pillars. These guidelines are apparently seems to be quite added information for the banking managements. But again there is an inverse argument, who accepts the challenges, threats and then commits to carry out the assessments, so that the future risks could be minimised at least.Methodology and DataThe data for the banks regarding Germany, France and Italy was analysed by the Excel programme. During this depth psychology, a simple linear regression was carried out. There were altogether 8 parameters which were used. However in case Germany banks were compared to that of France and Italy.The parameters were such as, index, contributes, equity, LA, NIM, ROAA, ROAE, and CIR. As a weigh of fact these parameters are the base lines for the banks to work/operate in the competitive financial markets.Results and DiscussionsThe results of the analysis are presented below. It has already been indicated that the German data is compared to that of France and Italy. The judge 1 below shows that the blood amidst the German banks and France banks seems to be very poor. It means that the ways the German banks are applying are entirely different to that of France and vice versa. control 2 discusses the regression analysis of German banks versus Italy banks o n the basis of index. It can be seen that again the relationship still very week.The data regarding loans is presented in the following Figure 3, in this case German banks were compared to that of France banks. The results show that the way the German banks are obtaining or lending loans are not comparable to that of France. It can also be seen from that Figure 3 that R2 value is too weak.Figure 4 shows the data comparison betwixt the German banks and Italian banks. Again the regression analysis indicates that there is not good relationship between the both. Even when we learn at the equation, it suggests that Italian banks approach is entirely disallow to that of German banks regarding extending loan facilities to the businesses.In reality equity is the very important parameters, banks work against equity either way. It means if banks are getting loans from other financial institutions, it workings on the basis of equity. It also argued here that the poor relationship between the German banks and France clearly demonstrates that there are more risks for the France banks when compared to German banks (Figure 5).Figure 6 highlights the comparison between German banks and Italy banks. The relationship between the two still very poor. It can also be seen that this relationship is negative.The data regarding LA is presented in Figure 7 and the relationship between German banks and France is indeed very poor.The results of LA regarding German banks and Italy banks suggest that there is negative relationship between the two. The same can be seen from Figure 8.Figure 9 suggests that the relationship regarding NIM for German and Italy banks negative, it means no relationship at all.The data concerning NIM is presented in the Figure 10. It can be seen that the relationship between the German banks and Italy very poor. As this relationship shows negative relationship.The analysis of ROAA regarding German and France banks is given in Figure 11. The negative relation ship shows there is no strength in particularly applying the same approach.Again this ratio is highly important to note the differences in the banks. The results of analysis are given in Figure 12. It can be seen that there exists negative relationship between the German banks and Italy banks.Data regarding ROAE ratios is compared between the German and France banks. The same can be seen in Figure 13. The negative R2 value indicated the weakness of the relationship.Figure 14 suggests that the relationship between the German and Italy banks is negative. It means that the way the German banks are calculating ROAE is not same in case of Italy.The data in reference to CIR is shown in Figure 15. The comparison between the German and France banks shows that there is a negative relationship.The comparison about CIR between Germany and Italy clearly shows that there exists negative relationship. The same data is shown in Figure 16.When we look at the Figures above, in most of the analysis c onducted for the various parameters show that there is a negative relationship. It means that the strength of the approach differs. As a matter of fact, it is argued that the methods of calculating risks are nearly similar in the German, France and Italy banks. So a question arises, why it is so? There could be many reasons rear the explanations. But very viable and quite acceptable refers to the non availability of the data during the months and years. The data shows big gaps, and further suggests the approaches in calculating risks in the banks are not same as in regarding Germany.Conclusions and recommendationsWhen we look above, it can be seen that there are different ways and means are be used by the three countrys banks in calculating the various ratios, including loans and debts. It is also very clear that there is no relationship when the data were tried through regression analysis. There is likely possibility that the German banks are not using those principles, where ar e used by the France and Italy banks, or vice versa.Concerning recommendations, it is suggested that the German banks if use the similar way of in disbursing loans especially there is high probability that the risks could be deep down compared among the three countrys banks.